The Truth About Day Trading & 3 PowerRatings Stocks
Day trading is a blast. If you have the internal constitution to handle the inevitable losses and fast action, intraday trading is an exciting way to earn a living.
Many traders believe that they are limiting their risk, but still capturing the upside by only holding positions during the day. These investors go back into cash at the close of every trading day.
Their theory is tons of negative news occurs when the market is closed therefore by closing out positions, this overnight risk is mitigated. While it is true that bad news often happens when the markets are closed. In addition, it makes sense that if you’re not exposed to stocks overnight, you will miss the negative impact of being trapped in an overnight gap down situation. However, like most things in the stocks market, the truth is stranger than you can imagine.
We decided to test this idea to see how it plays out in the real world of trading. The results were downright shocking. We tested trades on the SPY from 1995 to 2007. One group of trades bought the SPY every day on the close and sold on the open. The second group of trades bought the SPY on the open and held until the close every day.
What was discovered flew in the face of conventional wisdom of closing positions at the close. The overnight group gained 171.40 points over the time frame; while the day trading only group lost a total of 70.88 points! This was despite all the negative things that occurred overnight during those 12 years. Remember, the market tripled in value over this time frame, but if you assumed no overnight risk with the SPY, you actually would have lost money.
These tests make it clear that holding overnight is superior to closing out trades at the close daily.
Here are 3 bullish PowerRatings stocks for your consideration.
^FRZ^
^SIRI^
^ADG^
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David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.